People who have a bad credit rating and want to own their own home will be happy to know there are several options open to them, even if their bad credit is due to bankruptcy. In fact, those who have received their bankruptcy discharge will find financing available the very next day.

It is important for people with bad credit to research and fully understand the loans that are offered to them and the requirements expected of them will be very different than the normal mortgage given to people who have good credit.

For people who have not declared bankruptcy or gone through a foreclosure, it is recommended that they check their credit rating before looking for a loan. Financers make their decision whether or not to approve financing for each customer based on two different systems.

The first system is very similar to the “grade” system used in schools. People who’s score is in the A range have the very best credit, B is good credit, C is shaky and D represents the worst credit rating.

The second system is numeric and is just like a test score with 800 being perfect and every score at or below 400 being very bad.

Financers will combine those two facts to determine if a customer qualifies for a loan with them as well as the terms of the loan. People who have the best credit will get the best offers but that doesn’t mean people who have less than desirable credit will get a bad deal.

How To Get A Mortgage With Bad Credit

Another factor that will affect a customer’s ability to get a mortgage is their debt to ratio income level. Basically, how much does the person(s) owe vs how much they make. The ideal combination is to have more income than debt.. Financers want as much assurance as possible their customer will have the means to repay the loan they are receiving and someone with more debt than income will not be able to meet that requirement.

A person’s debt to income ratio also determines the amount of financing they are eligible for. Obviously, the less you owe, the higher the amount of your loan will be. The preferred percentage of debt is around 40% for everybody, though it is possible to obtain financing in the sub-prime market with up to a 60% debt ratio.

The value of the property a customer wishes to buy vs the amount it is being sold for can also factor into a financer’s decision to grant a mortgage. If a property is listed at a price higher than it’s market value, the customer will find it next to impossible to get a loan. This usually happens when the owner of the house is selling by themselves as opposed to listing their property with a real estate agent or agency. People who are considering purchasing their home from the owner, may want to request a copy of a recent appraisal by a licensed appraiser to make sure the asking price is not too high.


When a customer with bad credit begins to shop around for financing, one thing they need to keep in mind is that they will be charged a higher interest rate than someone who has good credit. This is because the lenders are taking a bigger risk with these loans.

That doesn’t mean there aren’t good deals to be had, though. There are two avenues open to people who are serious about meeting their obligations to purchase a home.

The government has two loan options available. The first is through the FHA (Federal Housing Administration). The main goal of this agency is to provide financing to people with low income, though they also consider people with bad credit. One requirement that has to be met to qualify for their assistance is the customer will have to make a down payment of 3% of the asking price for the home.

The other option is through the VA (Veteran’s Administration). This is only available to veterans but does not require a down payment and like FHA loans, the interest rates are usually lower.

The second avenue is a bad credit loan. Unfortunately, these can be pricy as the financers will charge the customer a higher interest rate, the exact amount varies, though it is usually 1 to 2% more than a regular loan. The customer will also be responsible for a down payment and closing costs, if applicable. They may also be required to make weekly payments rather than one monthly payment.

There are many things for people with bad credit to consider before looking for financing to purchase their own home but one of the best incentives for doing so is the knowledge meeting the financial requirements for their mortgage will drastically improve their credit rating for future use.